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Is your board working?
By Vivek Gambhir, Ashish Singh and Karan Singh
Indian boards need tofocus on strategyandraise corporate governancestandardsto be effective
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Copyright 2009 Bain & Company, Inc. All rights reserved.
Editorial support: Elaine Cummings
Layout: Global Design
Vivek Gambhir is a partner in Bain & Companys New Delhi office and leads
Bains Consumer Products practice in India. Ashish Singh is managing director
of Bain & Company in India. Karan Singh, a partner in Bains New Delhi office,
leads the firms Healthcare practice in India.
The authors would like to thank Manjari Raman, senior editor at Bain & Company
in Boston, Vikas Saggi, principal, and Sonya Thomas, senior consultant, in Bains
New Delhi office, for their significant contribution to this report.
The authors are grateful to Radha Ahluwalia, managing director, and Pranav
Kumar, executive vice president, IMA-India, for their support.
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Is your board working?
Indian boards needto focus on strategy
and raise corporategovernance standardsto be effective
The best corporate boards challenge and
guide companies to achieve higher levels of
performance year after year. But they are all
too rare. Instead, as the collapse of Enron,
WorldComand closer to home, Satyam
shows, companies with weak corporate gover-
nance hurtle to their demise. While the spectac-ular failures get headlines, under-performing
boards are all too commonand equally dan-
gerous, as they silently erode shareholder wealth
over time. According to Bain & Companys
research on sustainable value creation, in a
global sample of more than 2,000 companies,
very few companies consistently performed
well. When rated on three criteria for high per-
formancemore than 5.5 percent real revenue
growth per annum, more than 5.5 percent real
net income growth per annum and creating
shareholder value in excess of the cost of com-
pany equityover a 10-year span, only 12 percentof the firms made the cut. The rest faltered.
Strong, effective boards can help companies
avoid trouble by making the right decisions at
the right time. Boards that play their role well
help companies go from strength to strength,
over long periods of time, despite disruptive
forces like competition, technology or economic
turbulence. However, by that measure, many
Indian boards currently fall short: most Indian
companies need to raise corporate governance
standards as a top priority if they are to be sus-tainable over the long term.
A recent Bain & Company survey in India
reveals that even some of the top-performing
companies in the country are quite weak in
corporate governance when compared with
global practices. (See figure 1.) Worse, boardsof many Indian companies with global ambi-
tions are simply not keeping pace with the
1. Guide strategy
Note: I = Average board performance of 44 Indian companies surveyedSource: Bain Corporate Governance in India Survey, 2009
2. Nurture leaders
3. Align incentives
4. Manage risk
5. Enhance the brand
6. Enable governance
1 2 3 4
Relative performance
5
Weak Strong
I
I
I
I
I
I
Figure 1: Indian boards face gaps when compared with global best practice
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Is your board working?
evolving standards in global corporate gover-
nance. For example, while Indian boards
hardly ever deal with issues such as CEO per-
formance or CEO succession, many US andEuropean boards hold themselves responsible
for grooming leadership. Another key differ-
ence: most Indian boards seldom systemati-
cally analyze the financial and operational
risk their companies face. The best US and
European boards, on the other hand, now
have formal risk-management processes in
place, including a whistle-blower policy and
an ombudsman.
Bains Corporate Governance in India in 2009
survey was conducted in association withInternational Market Assessment (IMA) India
and included more than 100 interviews with
directors on the boards of 44 prominent Indian
companies, across industries. We also inter-
viewed regulators, commentators, analysts
and company secretaries to get deep, granular
insights into Indian corporate governance.
The two-punch message: many Indian companies
are vulnerable due to weak corporate gover-
nance, and most Indian boards lag in per-
formance compared with global practices.
Lets consider these two issues in more detail.
Why good governance matters
Most Indian boards focus more on meeting
regulations than proactively protecting the
companys interests. The survey revealed that
when it came to structures that are regulated
by the law, Indian companies tend to be dili-
gent in checking the boxes. As a result, in
areas where Indian regulations are on par
with global regulations, Indian corporate gov-
ernance standards too compare well with global
standards. For example, the size of Indianboardstypically 11 board membersmatch-
es that of the US (average: 11) and Europe (13).
Similarly, the average number of times a year
the audit committee of an Indian board meets
(5) compares favorably with European (6) and
US (9) boards.
But compliance is only a small slice of effective
corporate governance. (See figure 2.) A board
Comply with regulatory andfiduciary requirements
Clarify roles of board members andother governance participants
Create committee structure andrevise as needed
Establish efficient meeting practicesand revise as needed
Determine the time commitmentrequired from board members
Comply with regulatory andfiduciary requirements
Establish corporatecompensation philosophy
Set metrics and assess performance ofbusiness units
Evaluate performance of CEO and topmanagers; determineappropriate compensation
Evaluate board performance; link it tocompensation and suggest improvements
Comply with regulatory andfiduciary requirements
Leverage networks to mobilize resourcesneeded for strategy implementation
Assist with positioning of companysimage and brand
Communicate strategy to public marketsand investors
Comply with regulatory andfiduciary requirements
Groom future corporate leaders Review and build senior
talent pipeline Determine ideal board composition
and appoint board members withthe right board expertise
Comply with regulatory andfiduciary requirements
Contribute expertise to development offinancial strategy
Evaluate major financial decisions throughstrategic lens
Identify key strategic risks and develop amitigation plan
Comply with regulatory andfiduciary requirements
Contribute expertise andperspectives and play challengerrole during strategy development
Play an active role in evaluatingM&A strategy and new ventures
Assess market dynamics and theirimpact on strategy
Source: Bain analysis
1. Guide strategy 2. Nurture leaders 3. Align incentives
4. Manage risk 5. Enhance the brand 6. Enable governance
Figure 2: Effective boards focus on six key areas
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Is your board working?
that is concerned with compliance alone con-
siders its job done when the company meets
the guidelines of the countrys securities and
exchange watch-dog. Such compliance-led boardshave little incentive to focus on long-term sus-
tainability issues. A strategy-led board on the
other hand, uses regulations as a baseline: it
then tries to go beyond and help influence the
company strategy and guide it down the path
of sustained value creation. On a critical issue
like signing off on financials, for example, a
compliance-led board might be content ask-
ing: Are we accurately reporting the compa-
nys finances? Strategy-led board members,
we find, probe much harder and deeper: Do we
fully understand the financial health and risksof the company? Where should capital be
allocated to ensure we maximize shareholder
wealth? Is our financial strategy sustainable?
(See figure 3.)
Currently, the survey shows, Indian boards
take little interest in strategy. Often, board
members are either diffident about challeng-
ing top management, or simply not encour-
aged to comment on issues such as CEO com-
pensation. This lack of strategic support fromthe board represents a missed opportunity for
Indian companies. Globally, there is ample
evidence that good corporate governance
brings tangible benefits to companies. A report
by the International Finance Corporation (IFC)
concludes that well-governed companies often
draw huge investment premiums, get access
to cheaper debt and outperform their peers.
A Deutsche Bank study of S&P 500 firms
shows that companies with strong or improv-
ing corporate governance outperformed thosewith poor or deteriorating governance prac-
tices by about 19 percent, over a two-year period.
Indian boards need to improve governance
standards not just for the financial benefits
but also to avoid the pitfalls of weak board
management. Recent corporate scandals have
shaken the faith of domestic shareholders.
Increasingly, domestic investors, policy makers
and shareholders demand that Indian boards
play a stronger role in protecting corporate
wealth creation. Our survey finds, however, thatmuch more needs to be done before Indian
boards make effective decisions. Clearly, the
loose standards in governance that led to
Satyams downfall, could also trip up other
leading Indian companies.
Indian companies with global aspirations
know they must raise governance standards
even more urgently. In some areassuch as
the membership of board committeesnot
only are global regulations more stringent,but also, global investors and shareholders
expect the board to play an active role in deliv-
ering results. This is particularly true after
Enron, when regulators around the world
became more active and tightened corporate
governance requirements. While the US led the
charge in 2002 with the Sarbanes-Oxley Act,
the wave of stricter regulations rolled right
across the world: Canada (2003); France (2003);
Australia (2004); Italy (2005); Japan (2006),
et al. For Indian companies expanding abroadthe number of Indian companies listed on US
stock exchanges more than tripled from 23 in
2005 to 85 in 2008meeting global stan-
dards in corporate governance is not a choice,
its a necessity.
Where Indian boards lag
It is short-sighted to ask is our board doing
enough or worse, are we covered? The real
question an Indian company faces is: how canthe board help so that there is a sustained,
long-term improvement in performance? In
Bains global experience with top-performing
companies, the best boards focus their efforts
on six priority areas. These are: guiding the
company strategy; building the top manage-
ment team; measuring performance and
matching rewards; ensuring financial integrity
Signoff on corporateM&A activity as requiredby law or fiduciary duty
Report on corporateactivities/statistics asrequired by law
or fiduciary duty, e.g.: Board composition Compensation Impact on
environment/communities
Signoff onfinancial reporting
Structure boardaround minimumregulatory requirements
Compliancefocused board
Figure 3:
Effective boards
move beyondcompliance to
shaping strategy
Guide strategydevelopment andimplementation
Build companyleadership
Align incentives withstrategic goals
Ensure alignment offinancial and riskstrategy with vision
Enhance corporatebrand and positioning
Develop board structureand operations to enablestrategic impact
Source: Bain analysis
Strategyfocused board
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Is your board working?
Source: Bain Corporate Governance in India Survey, 2009
Percent of respondents Percent of respondents
0
20
40
60
80
100%
0
20
40
60
80
100%
More than optimal
Optimal
Less than optimal
Optimal orabove optimal
Less than optimal
How much time does the boardspend on planning strategy?
How strong is your understandingof strategic issues?
Figure 4: Only half the survey respondents feel they have enough time and context forstrategy planning
and managing risk; protecting the corporate
reputation; and setting up board structures
and operations. Within each of these areas,
there is a set of key activities and associateddecisions which a board needs to master in
order to be truly effective. Our work with com-
panies globally shows that if companies focus
on shoring up decision-making in just 20 or
so key corporate governance decisionsthey
very quickly begin catching up with global
best practices.
I. Guiding strategy
Globally, the strongest boards play an increas-ingly proactive role in shaping the strategy of
the company. The survey revealed, however,
that Indian board members make only informal
contributions to strategymost are in fact,
never asked to formally take part in developing
corporate strategy. Board members admitted
that usually, the only time they delved into
corporate strategy was during a merger or
acquisition. Otherwise, around 50 percent of
the survey respondents felt that their board
did not spend enough time planning strategy
for the future. In the entire sample, very few
companies held an offsite meeting for board
members to discuss strategy.
Many board members also raised the concern
that they were ill-equipped to comment effec-
tively on strategy: about 45 percent of the
respondents felt they did not understand the
strategic issues facing their company. At one
company, board members were unclear about
the key products positioning in the market.No company in the entire survey had a board-
level strategy committee. (See figure 4.)
By not involving the board in shaping strategy,
Indian companies miss the opportunity to fully
use the valuable experience board members
bring to the table. (See figure 5.) Globally, the
best-managed companies encourage board
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Is your board working?
members to contribute expertise and examples
from comparable industries they might have
worked on. Sometimes, the board even brings
in external experts to help them review the
companys long-term game-plan. Many boards
now also insist on forming a strategy commit-
tee. For example, in Europe, 15 percent of the
boards surveyed in the 2007 annual Heidrick
and Struggles Corporate Governance report
had a dedicated strategy committee.
Also, globally, at the best-managed compa-
nies, board members play a challengers role
on strategyunlike in many Indian boards,where board members default to a passive lis-
tening role. Usually, in order to ensure that
the board is up to speed with strategic issues,
companies include an overview on market
dynamics on every board meetings agenda.
Our survey revealed that currently, the man-
agement of only a handful of companies
interact with board members regularly to seek
feedback on strategy.
II. Nurturing leaders
Effective boards play a direct role in grooming
the company leadership. Globally, boardsweigh in on decisions such as selecting the
CEO, planning succession and even, building
the top management team. In 2008, board
members discussed CEO succession at least
once a year in more than 60 percent of the
S&P 500 companies. At more than a third of
the companies, board members addressed the
issue more than once a year. In a majority of
the S&P 500 companiesmore than 80 per-
centthe board had an emergency succes-
sion plan in place.
In contrast, board members of Indian compa-
nies shy away from company leadership
issues and receive little encouragement from
the CEO or promoter to do more. More than
75 percent of the survey respondents reported
that their board did not discuss CEO succession
planning at all. In addition, Indian boards
Source: Bain Corporate Governance in India Survey, 2009
Percent of respondents
0
20
40
60
80
100%
Spend more time
Spend less time
How much time should the boardspend on statutory issues?
Percent of respondents
0
20
40
60
80
100%
No comments
Not enough time
How much time does the boardspend on the most important issues?
Figure 5: Indian boards spend a majority of their time discussing statutory issues
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hardly get involved in the professional devel-
opment of top company leadership. Fewer than
20 percent of the respondents had any formal
or informal role to play in planning the CEOssuccession. (See figure 6.)
Indian boards also miss out on coaching and
developing top executives. We find that globally,
the best companies encourage greater interac-
tion between board members and top man-
agers. At many companies, top-level execu-
tives are invited to attend the non-executive
sessions of board meetings and encouraged
to make formal presentations to the board.
Through formal and informal means, boardmembers get to know and nurture top talent
in the company. At S&P 500 companies, 88
percent of the boards invited senior leaders to
make presentations to the board. In contrast,
the Bain survey found that very few Indian
companies invited business unit heads to
attend board meetings.
In a majority of the boards surveyed, we found
that Indian board members also did not play
an active role in bringing the right leadershipand talent on the board by appointing inde-
pendent directors. Very often, as a survey
respondent said: It is the promoter (founder)
of the company who does the head-hunting
for independent directors. In our sample,
very few Indian companies use a nominations
committee to select new independent direc-
tors. Instead, in a few instances we found
anecdotal evidence that independent directors
were actually friends or family members; in
one case, the lawyer to the family of the pro-moter was listed as an independent director.
Companies have to make sure that the board
is constituted in such a way that open dialogue
takes place, particularly on sensitive issues. If
Indian boards are to play a role in nurturing
leaders, or indeed, any other priority area, they
have to first find an independent voice. One
respondent spoke for many, when he told us:
In most board meetings I attend, 70 percent
of the directors dont speak at all.
III. Aligning incentives
The best boards play the role of a beacon: no
matter how the waves crash or in which direc-
tion the winds blow, they help the company
stay steadfast on its strategic goals. They do
this by setting the right incentivesand mon-
itoring them constantlyfor the company
leadership as well as for themselves. By link-
ing the CEOs and boards compensation to
company performance, the best boards try toensure that they are constantly protecting long-
term shareholder wealth-creation. In Bains
experience, globally, the most effective boards
align incentives by taking some practical steps:
One, they play a direct role in setting cor-
porate compensation by holding regular
meetings of the compensation commit-
tee, usually led by an independent director.
Two, they review the performance of busi-
ness units regularly at every board meeting.
Three, they are responsible for evaluat-
ing the performance of the CEO and
top management team and determining
their compensation.
Four, they evaluate their own perform-
ance regularlyand create roadmaps
for improvement.
Five, they link board compensation to per-
formance by, increasingly, accepting equity
as part of their compensation.
The survey showed that Indian boards do not
focus enough on evaluationthe corporate
leaderships or their own. (See figure 7.)Board members are involved in CEO evalua-
tion and compensation in just about 20 per-
cent of the companies surveyedand the
Percent of respondents
0
20
40
60
80
100%Yes,
formally
Yes,informally
No
Do you discuss CEOsuccession planning
on your board?
Source: Bain CorporateGovernance in IndiaSurvey, 2009
Figure 6:
Most Indian boards
are not involved insuccession planning
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involvement is even lesser in promoter-led
companies. One respondent said: Most boards
I have been on duck the issue. The CEO is
hardly ever evaluatednot unless the compa-ny is in trouble. The survey also identified
that very few companies in India use a struc-
tured process to reward directors.
Currently, most top-performing boards in the
US and UK undergo a formal board evalua-
tion at least once a year. Indian boards, on the
other hand, are not introspective at all: over 75
percent of survey respondents reported that
there was no formal board evaluation process
on their boards. (See figure 8.) This is in con-trast to the UK, where the best-managed boards
do a particularly good job of using the evalua-
tion feedback to improve board performance.
Sometimes, they bring in outside external
advisors to help the board make the right deci-
sions, other times, they use internal mentors.
IV. Managing risk
The best boards know that the only way they
can be effective custodians of shareholder wealthis by being constantly vigilant about the financial
and strategic risks to the company. As recent
global and domestic corporate debacles have
shown, board members fail their fiduciary duty
most when they take their eyes off the numbers.
Globally, the most effective boards are those
that play watch-dog and challenger in equal
measure: they constantly review operational and
financial risks and approach financial state-
ments with a healthy dose of skepticism.
The Bain survey revealed that in many
respects, Indian companies try to maintain
high standardsbut once again, the stress is
on compliance with rules, rather than a com-
mitted approach to unearthing weaknesses.
Several companies in the survey reported that
Source: Source: Bain Corporate Governance in India Survey, 2009; Spencer Stuart Board Index 2008 (S&P 500)
Have aprocess
Somewhateffective
Effective
Veryeffective
Very ineffectiveIneffective
No processin place
Percent of respondents
0
20
40
60
80
100%
Percent of respondents
0
20
40
60
80
100%
Formal
Informal
None
Percent of respondents
0
20
40
60
80
100%
Existence
Formal
Informal
CEO compensationExistence Effectiveness
Indian boards with aCEO evaluation plan
Indian board involvement inCEO compensation
S&P 500 boards with aCEO evaluation plan
Figure 7:
Indian boards are
less involved withCEO evaluations...
...than the boards of
S&P 500 companies...
...and Indian boards
are rarely involvedwith CEO compensation
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informally, they kept tabs on the risks the
organization facedbut managing risk was
not always formally on the agenda.
Also, the ability to manage financial risks
depends on the quality of the audit committee
of the board. While many companies focus on
the number of audit committee members, or
the number of audit committee meetings
thats still just compliance. Rather, the focus
needs to be much more on building strong,
savvy, independent committees. The survey
revealed that the financial expertise of audit
committee members was far from satisfactory.
To test this further, Bain studied a random
sample of audit committees from the survey
pool, in more detail. We found that the aver-
age expertise score was just 2.9 on a scale of 1
(limited expertise) to 5 (expert), and that the
highest average score was just 3.7. A lack of
accounting or financial management expert-
ise on the audit committee not only compro-
mises the boards ability to vet financial deci-
sions, it also impedes the development of a
viable risk-mitigation plan.
V. Enhancing the brand
Effective boards guard the corporate heritage.
Its their job to inherit the corporate brand
and image from the past and make it stronger
for the future. That requires constantly moni-
toring and managing the corporate brand
throughout the yearand not just in a crisis.
Globally, most well-managed boards have a
plan in place for a crisiswith clearly definedroles for board members. We also find that top-
performing companies involve board mem-
bers closely with the communications strategy
and use board members throughout the year
in different aspects of communications.
The Bain survey in India revealed that while at
a time of crisis, Indian board members give
themselves high marks for stepping up
there is very little engagement of the board on
issues around corporate brand-building or man-
aging the reputation of the company, year-
round. For example, board members were sel-
dom reviewed for their contacts and external
networks to help the corporate strategy.
The survey also revealed that Indian boards
lacked clarity on the rights of different types of
shareholders and were resistant to wider rep-
resentation on the board. One respondent dis-
missed private equity investors for their short-
term orientation, another found financial-
institution nominees to the board unproduc-
tive and to be tolerated. Many respondents
rejected the right of minority shareholders
being represented on the board. According to
one respondent, There is no such thing as
minority shareholder interest, only sharehold-
er interest. For Indian companies diversify-
ing their ownership, this will increasingly be
an area of focus. Even if these stakeholders
are not given a seat on the board, companies
will need to develop a plan to invite their inputat the board level.
On the positive side, the survey revealed that
Indian boards do see themselves as playing a
role in reminding a company of its social
responsibilities. This reflects a global trend,
where we find increasingly, that board mem-
bers of top-performing companies help craft
the companys corporate social responsibility
(CSR) agenda. These companies discuss CSR
at least once a yearoften morein boardmeetings and almost always have a formal
CSR strategy in place. Increasingly, we also
see top-performing boards help global compa-
nies make the right trade-offs on issues like
the environment and sustainabilityboth
in terms of the impact on strategy and the
impact on stakeholders such as employees
and customers.
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Is your board working?
Figure 8:
Indian boards
seldom evaluatethemselves
Notconducted
Conducted
Indian boardevaluations
Percent of respondents
0
20
40
60
80
100%
Indian directorevaluations
Notconducted
Conducted
Source: Bain CorporateGovernance in IndiaSurvey, 2009
Percent of respondents
0
20
40
60
80
100%
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Financial institutions and private equityfunds: Hitherto, investors played the
role of silent partners on Indian boards.
Increasingly, as the role of Indian
boards evolves, investors will need to
play a proactive, strategy-shaping role.
Most private equity funds are geared to
shape strategy in companies they invest
in; increasingly, financial institutions will
be expected to contribute too.
Regulators: The survey shows thatIndian boards do relatively well on
meeting the spirit of the lawbut is the
law demanding enough? Regulators can
play a vital role in raising corporate
governance standards across Indian busi-
nesses. A good starting point for Indian
regulators is to review global best prac-
tices and choose those that will improve
corporate governance without overbur-
dening companies with regulation.
Bain & Companys India survey shows thatthat there is significant room for improve-
ment in Indian corporate governance. Much
of that change will come from within Indian
companies themselveswith some choosing
to pull ahead of the pack with better board
management. However, multiple governance
participants have a role to play in increas-
ing Indian board effectiveness. A quick look
at who can help improve Indian boards
and how:
Promoters/CEO: Effective leaders can
create effective boards. In India, lead-
ing companies will seek to differentiate
their corporate governance standards by
tapping board members expertise and
encouraging them to contribute on
strategic issues.
Board members: By engaging more
with strategic issues and refusing to
merely check the boxes on regulatoryissues, board members can helpbring
worldclass practices to the boards they
serve on.
Board
RegulatorFI/PE
investor
Promoter
Increased board effectiveness requires assessment and action by multiple
governance participants
Setting an agenda for reform
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VI. Enabling governance
Sending out reading material to board mem-
bers in time, running the agenda efficientlyand distributing the minutes regularlynone
of these constitutes sufficient governance.
Instead, well-managed companies adopt board
structures and operations that make it possi-
ble for the board to make good decisions and
have a strategic impact on the company.
However, the survey revealed a fundamental
structural flaw in many Indian boards: board
members contribute to decision making only
informally. Repeatedly, survey respondentsshowed a lack of clarity on the role of board
members and in most companies there is no
well-defined, formal structure for board deci-
sion-making. As a consequence, the accounta-
bility of Indian board members suffers. When
a company is hit with a corporate governance
crisis, it is particularly hard to analyze in ret-
rospect who said what and how everyone was
led to the final decision. One way to ensure
that at least a sub-set of the board is deeply
informed about issues is to set up committees
based on the strategic needs of the company.
The survey showed that currently, the three
most common committees on Indian boards
are audit, investor grievance, and remunera-
tion. In the future, companies will need to set
up more specific committees with the right
expertise to tackle issues such as strategy, ethics,
and nominations.
At the best boards, there is less ambiguity
around decision-making. Board members can
play one of five roles in a governance decision.
They can: provide input to a recommenda-
tion; recommend a decision or action; for-
mally agree to a recommendation; make the
final decision; or be accountable for per-
forming once a decision is made. (See figure 9.)
However, the survey revealed that in the case
of Indian boards, there is often no expectation
of a board role in key governance decisions.
And even when the board is invited to weigh
in on a decision, it is on an ad hoc basis. The
contribution to the decision also varies between
board members depending on their relationship
with the promoter or the CEO of the company.
Operationally too, the Bain survey pointed to
a significant concern: we found respondents
were, on average, on more than four boards
each and that 20 percent of the respondents
were on more than eight boards each. Given
that, on average, board members attended
seven board meetings a year per company, the
survey reflected the practical limits to which
board members can engage in strategic mat-
ters. Indian board members not only have less
time to prepare for board meetings compared
with their global peers, but also, because of
the high number of boards they serve on, they
have constraints on the number of board
meetings they can attend in a year.
Globally, the best boards determine the time
each board member will need to commit
upfront and set limits on the number of
boards they can serve on. In many instances
we find companies set these norms based on
their needsand usually, they are far more
demanding than the guidelines set by local
regulators. In the US and Europe where boards
meet on average at least nine times a year, fre-
quently there are strict limits on the number
of boards people can join.
Getting started: Diagnosingboard performance
Out of all the challenges a company faces,
raising corporate governance standards is rel-
atively straightforward to fix. Once the top lead-
ership of the company commits to building a
more effective board, the corporate gover-
nance standards can rise quicklysome-
times, even between one board meeting and
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the next. A good approach starts with a thor-
ough diagnosis of the areas of weak corporate
governance, then, shifts to identifying the
solutions, and finally, results in a shortlist of
the top priorities for change. All three steps are
critical to success. (See figure 10.)
Ironically, it isnt difficult to identify the areas
of strengths and weakness in a board. One of
the most effective ways is to simply ask board
members for their views. Companies are
often surprised when the self-evaluation by
directors and board members contains open
and direct feedback on areas that need to be
improved: its as if board members were just
waiting to be asked. Once this baseline is estab-
lished, a company then needs to check how far
its board performance differs from regulatory
standards and best practice.
Review board compliance with basic regulations
and fiduciary duties: Most leaders already know
that gaps in these areas are non-negotiable
and pose a risk to the companys long-term
future. A company wins no special rewards for
compliance; it is quickly punished for non-
compliance. The first step is therefore to make
sure that the company currently meets all the
regulations and guidelines in the letterand
spiritof the law.
Review board performance in strategic areas:
By evaluating its performance against best
practices in each priority area for the board, a
company can quickly identify the areas of
weakness and strength. Bains Board Diagnostic
Toolkit for benchmarking board performance
starts with best practices in each of the six pri-
ority areas and then ranks a boards perform-
ance on a scale of 1 (weak governance with
next to no best practice) to 5 (strong gover-
nance which matches world-class standards).
(See figure 11.) In terms of enhancing the
brand, for example, a global best practice Bain
Source: Bain Experience Center
DecideInput A gree
Perform
RecommendRecommend adecision or action
Be accountablefor performing onthe decision
Make the finaldecision (committhe organizationto action)
Provide input to arecommendation
Formally agree ona recommendation
Priority areaProcess/role challenge
for Indian boards
1. Guide strategy
2. Nurture leaders
3. Align incentives
4. Manage risk
5. Enhance the brand
6. Enable governance
Limited formal processfor reviewing marketdynamics and their impacton company strategy
Ad hoc board involvementin CEO succession planning,development of top talent andnew board member addition
Limited board role inperformance evaluationand compensation decisions
Lack of formal boardperformance evaluation
Limited formal processfor risk assessment andmitigation strategies
Ad hoc board involvementin corporate relationshipmanagement and communication of corporate strategy
Minimal discussion of decisionroles/rights
Figure 9: Effective corporate governance needs clearly defined decision-making processes
and roles (RAPID)
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12
Is your board working?
has observed is that well-managed companies
develop a clearly defined communications plan
with clear roles and responsibilities for board
members, all year round. The toolkit tests if acompanys board has such a plan in place
and if the plan is communicated to stakehold-
ers and public marketson the scale of 1 to 5.
Similarly, by working through all six areas, the
company has a clear diagnosis: an objective
assessment on where it stands versus global
best practice in corporate governance.
Clarify key governance decisions requiring
board involvement: The board does not have
to weigh in on all decisionsbut often theboard ends up ignoring the most important
decisions. A company therefore needs to be
very explicit on when it needs what from
board members: at times full engagement and
decision-making, at times, just recommenda-
tions, and at other times, simply to provide
input based on their expertise. Similarly, board
members must be very clear on when they need
to play what role, since it may change at dif-
ferent points in the decision-making process.
A tool we call RAPID clarifies accountabili-
ties for each part of these decisions. RAPID is
a loose acronym for the key roles in any major
business decision. The individual or team
responsible for a recommendation gathers rele-
vant information and comes up with a proposed
course of action. People with inputresponsi-
bilities are consulted about the recommenda-
tion. They help shape a recommendation so
that it is operationally practical, financiallyfeasible, and so on. An executive who must
agree is anyone who needs to sign off on the
proposaloften a legal or regulatory compli-
ance officer. Eventually, one person decides
this person has the D. The final role in the
process involves the people who will perform
or execute the decision.
Identify key participants in corporate governance
Assess current board practice
Review current board compliance with regulations and
fiduciary duties
Evaluate quality of board contribution to strategic priority areas
Map current decisionmaking processes; identify current rolesplayed per corporate governance participant (using RAPID)
Compare board operations to global best practices
Set a baseline via board and director selfevaluation
Categorize gaps to
be resolved
By impact
on performance
By level of
change/investmentneeded for resolution
Agree on prioritized
list of opportunities
Finalize initiatives
and milestones for
each opportunity
Develop immediate
next steps and
implementation plan
Prioritizeopportunities
Conduct board diagnosticDevelop
roadmap forimprovement
Source: Bain Corporate Governance in India Survey, 2009
Figure 10: Effective governance: In three steps
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13
Is your board working?
1
Weak Strong
0%Best practice
100%Best practice
2 3 4 5
Board plays no
role in strategy
development
process
Board rubber
stamps strategy
without full
consideration
of implications
No (or minimal)
role of board
in M&A target
assessment
No (or minimal)
role of board in
assessment of
new business
ventures
Board does not
review marketdynamics and
their impact
on strategy
Board
contributes
experience to
strategy
development
Utilizes external
consultants as
needed
Board rubber
stamps strategy
without full
consideration
of implications
No (or minimal)
role of board
in M&A target
assessment
No (or minimal)
role of board in
assessment of
new business
ventures
Board does not
review marketdynamics and
their impact
on strategy
Board
contributes
experience to
strategy
development
Utilizes external
consultants as
needed
Full board
review of
strategy for
alignment with
company goals
and vision
No (or minimal)
role of board
in M&A target
assessment
No (or minimal)
role of board in
assessment of
new business
ventures
Board does not
review marketdynamics and
their impact
on strategy
Board
contributes
experience to
strategy
development
Utilizes external
consultants as
needed
Full board
review of
strategy for
alignment with
company goals
and vision
Full review of
M&A targets
to ensure
alignment with
companys
strategy
Full review of
new business
ventures
Board does not
review marketdynamics and
their impact
on strategy
Board
contributes
experience to
strategy
development
Utilizes external
consultants as
needed
Full board
review of
strategy for
alignment with
company goals
and vision
Full review of
M&A targets
to ensure
alignment with
companys
strategy
Full review of
new business
ventures
Formal process
for regularreview of market
dynamics and
strategy
Contributeexpertise, outside
perspectives
and provide
challenge role
during strategy
development
process
Play an active role
in evaluating M&A
and new ventures
Assess market
dynamics and
their impact on
corporate strategy
on a regular basis
Source: Bain Diagnostic Toolkit
Key boardactivity
Figure 11: Diagnosing and improving corporate governance in one key area:
guiding strategy
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Is your board working?
The Bain RAPID decision framework estab-
lishes clear roles and accountabilities and
ensures that stakeholders are appropriately
alignedand is particularly helpful in reduc-ing ambiguity in the boardroom. In a key deci-
sion, such as formulating a three- to five-year
strategy for example, based on the inputfrom
sources like the chairman or the promoter of
the company, the CEO must recommend a
strategy to the full board. A sub-set of the
board, perhaps the strategy committee, then
must go through the three- to five-year strate-
gy in detail, vet it for risk, and agree that it
makes sense to go ahead with the strategy.
The full board must then decide on adopting
the game-plan within a prescribed time-period.
We find there are 20 or so key decisions like
these where board members need to have
complete clarity on what is expected of them.
While a tool such as the Bain Board Diagnostic
is a necessary first step, companies must also
clearly lay out the steps needed to address key
gaps. While defining the most-important actions
to take, companies usually consider two fac-
tors: first, the impact on performance and sec-ond, the investment in time and effort needed
to fix the problem. A company needs to be
very practical in its approach while building
the list of things it needs to improve. Rather
than trying to boil the ocean, companies are
better off planning board improvements in
steady waves of change. At one company,
for example, it was a shock to the manage-
ment that the expertise on its audit committee
was below par and that audit meetings were
too short for board members to fully under-
stand financial risks and discuss strategy for
protecting the company. A quick solution for
the company was to increase the number of
audit committee meetings from four to six.
However, a longer-term priority became draft-
ing more qualified board members.
There are many reasons for a company to
invest in corporate governance: reduced risk
of fraud, reduced volatility in share prices,
access to cheaper capital or increased share-holder return. We find that whatever the start-
ing point, the end point is usually the same:
pleased shareholders, more committed board
members, more confident top management
teams and interestingly, more satisfied
employees. In our experience, good governance
seldom stops at the boardroomit percolates
across the company and goes straight to the
bottom line.
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Is your board working?
Notes
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Bains business is helping make companies more valuable.
Founded in 1973 on the principle that consultants must measure their success in terms
of their clients financial results, Bain works with top management teams to beat competitorsand generate substantial, lasting financial impact. Our clients have historically outperformed
the stock market by 4:1.
Who we work with
Our clients are typically bold, ambitious business leaders. They have the talent, the will
and the open-mindedness required to succeed. They are not satisfied with the status quo.
What we do
We help companies find where to make their money, make more of it faster and sustain
its growth longer. We help management make the big decisions: on strategy, operations,technology, mergers and acquisitions and organization. Where appropriate, we work with
them to make it happen.
How we do it
We realize that helping an organization change requires more than just a recommendation.
So we try to put ourselves in our clients shoes and focus on practical actions.
Is your board working?
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